UNSUSTAINABLE and ILLEGITIMATE DEBT
An Open Letter to the Governments of the Group of Seven States
on the occasion of their 49th Summit, Hiroshima, Japan
No more false debt solutions!
As you, leaders of seven of the world’s richest countries convene for your 49th summit, many Asian countries of the Global South are gripped more tightly than ever in a multiple crisis of development and climate change. Yet the level of development and climate finance needed for survival and beyond, remains far below what is required to undertake deep, wide and transformative changes for people and the planet.
There was a momentous opportunity for your governments to step up in 2020 at the onset of the COVID-19 pandemic, when you committed “to support the poorest and most vulnerable countries as they address health and economic challenges associated with COVID-19.” But tragically it was missed, like many other opportunities you have lost in taking heed of the conditions and calls of the developing world and embarking on meaningful change.
Instead, you pushed solutions that missed the mark, as evinced by today’s sharper inequality divides within and across countries, further debt accumulation and crushing debt service, and by the millions more pulled into extreme poverty and rendered more vulnerable to intensifying climate change. Only last year under the German presidency, you claimed special responsibility for shaping a future of “prosperity, stability and solidarity”, including achieving sustainable solutions for critically debt-trapped countries. But we find no substantive, decisive steps in this direction.
Your governments vigorously supported the G20/Paris Club’s Debt Service Suspension Initiative (DSSI) which was limited to less than half of developing countries, and has proven grossly inadequate in matching the depth and breadth of the debt catastrophe. You left behind middle-income countries (MICs) where 80% of people falling into absolute poverty due to COVID-19 struggled to survive. DSSI’s mere deferral has come with a backlash of more oppressive repayment obligations from 2022 onwards, and under much more trying economic and financial conditions, absent additional debt reduction measures. You also promoted the development of DSSI’s successor, the Common Framework for Debt Treatments beyond DSSI, which still fails to compel the participation of private sector lenders, a flaw that has led to their bailout with the new loans from multilateral institutions. You must also be held to account for your continued support of such failed and futile debt “relief” mechanisms that exclude MICs, in the face of the deeper debt trap into which MICs like Sri Lanka and Pakistan have fallen.
Meanwhile, your governments, together with international financial institutions and lenders are at the forefront of promoting more loans and private investments as so-called win-win solutions to both the development and climate crisis. In doing so, you are plunging Global South countries into a greater debt debacle that will cause more deprivation and misery, while evading your historical responsibility for the climate emergency and unjustly shifting your obligation to deliver grants-based climate finance to peoples of the Global South, who least contributed to the crisis of climate change.
Reiterating our call and demands, we strongly urge your governments to —
- Cancel the debt for countries in need, including public debts of a questionable and fraudulent nature that violated human rights and contributed to exacerbating the climate crisis.
- Support the elimination of IMF surcharges, which penalizes the most debt-distressed countries and further erodes the capacity of developing countries to respond to urgent social needs.
- Enact/strengthen national legislation to require the participation of private creditors in debt relief, which is a key element in any serious wide scale debt reduction or restructuring effort.
- Immediately deliver new, additional and non-debt creating climate finance for adaptation, mitigation and loss and damage, much more than the unfulfilled $100 billion/year pledge, to adequately meet the needs of the Global South.
ASIAN PEOPLES’ MOVEMENT ON DEBT & DEVELOPMENT, 19 MAY 2023
STATEMENT ON THE 2023 IMF-WB SPRING MEETINGS
IMF-World Bank Spring Meetings: Pursuing false solutions to the debt catastrophe
The current political turmoil in Pakistan adds another layer of misery to millions of people in this debt-trapped country. For Sri Lanka, the relative calm on the surface may be short-lived as it embarks on the hard road of austerity charted by the International Monetary Fund. As feared, there was no sign of forthcoming relief from the Bretton Woods institutions' meeting last April, who continued to promote more borrowings and de-risking private sector investments among their main fiscal responses.
Once again, the IMF and the World Bank, the Bretton Woods institutions sought to prove their relevance in a world wracked by deepening multiple crises. At the 2023 Spring Meetings, they “recommitted to… the vision of a poverty-free world and pledged to explore new solutions to tackle an ever-present set of threats to development and the lives of the poor…”
But the avowals of these international financial institutions (IFIs) hold increasingly less water as countries teeter at the edge of bankruptcy and default with debts accumulating to a 50-year high.
They did not delve into persistently high inflation rates and more burdensome debt service payments and how this is further deepening inequality and poverty. They did not look closely at skyrocketing prices of basic goods, acute food and fuel shortages, and intensifying climate change in countries that are also cutting back on badly needed social spending to meet debt repayments.
Pakistan is one of the countries. By the World Bank’s own figures, 11 million people in South Asia added to the global poverty headcount of almost 660 million. Inflation has reached an unprecedented 37.5%, the highest since 1973, with dire results for the Pakistani people. Food inflation ballooned by 47.15% in March from a year before. Transport prices have also soared by 54.94%. Pakistan has increased taxes to raise more revenues amounting to $643 million, a key IMF conditionality for Pakistan to avoid a default. But despite austerity and more taxes, the overall fiscal deficit still rose by 22.7% due to higher interest payments. On top of these, the IMF is collecting millions of dollars from Pakistan in the form of surcharges that the Fund levies for high debt levels and failure to pay outstanding obligations on time.
Still, the Pakistan government prioritizes meeting debt repayments this year, jumping from pillar to post to borrow more. Some 10 million remain without access to safe drinking water six months after the monsoon floods that global warming and glacial melt made catastrophically worse. In recent weeks, flour shortages have plagued Pakistanis, several of whom were killed and injured in the long queues for the staple. Still, more than $22 billion will be collected from the Pakistani peoples for debt repayments maturing in 2023. IMF negotiations for a delayed $1.1 billion loan tranche, part of a $6.5-billion bailout agreed in 2019, drag on while foreign exchange reserves dwindle.
For Sri Lanka, the IMF bailout package of nearly $3 billion-worth further adds to the country’s debt levels and clears the way for this debt-dependent country to access more debts. In the meantime, it remains at the mercy of the Fund’s austerity conditionalities attached to debt restructuring. Inflation is still staggering at 59 percent and nearly 30 percent of the population is experiencing food insecurity, according to the UN.
Sri Lanka also illustrates the failure of G20 debt reduction schemes – promoted vigorously by the IMF and the World Bank – to require the participation of private creditors in addressing the debt crisis. Following Sri Lanka’s default in 2022, it was sued for full payment by the Hamilton Reserve Bank which holds $250 million of the country’s 5.875% International Sovereign Bond by the Hamilton Reserve Bank. Negotiations are still ongoing with other private creditors holding $1.633 billion of Sri Lanka’s International Sovereign Bond.
The burden of filling in the gaps to provide even minimally for their families and children often falls heavily on women, at the expense of their own health and well-being amid the pandemic. One in four households in Sri Lanka is headed by women, of which half are widows and face persistent difficulties of juggling family responsibilities with paid and informal, precarious work, discriminatory attitudes toward women, limited access to finances, and inadequate social protection, among others.
IMF-WB DEBT SOLUTIONS
As expected, the IMF and the World bank affirmed their support for strengthening the Common Framework to debt treatments, the successor to the failed Debt Service Suspension Initiative. Both measures have proven ineffective in bringing private lenders to restructure public debts in any significant terms that will enable Southern borrowers grappling with crises.
Enhancing the Common Framework was discussed at the Spring meetings, particularly in the Global Sovereign Debt Roundtable, a World Bank-initiated process that suffers from the same opacity and democratic deficits in the IFIs. Only a few borrowing countries have been invited to participate in this process that also includes from its first meeting in February 2022 bilateral and private lenders. Again, we see the sidelining of long-standing civil society calls for a fair, transparent, binding and multilateral framework for debt crisis resolution under UN auspices where sovereign debt issues and resolutions can be democratically discussed.
Another highlight of the Spring meetings was to declare progress with the rollout of the World Bank’s so-called Evolution Roadmap. As a way of mobilizing greater climate finance, its key tracks are to reform multilateral development banks to expand their lending capacity and leverage or de-risk private finance with public money and investments in order to attract more buy-in by private actors.
What this clearly forebodes is even more accumulation of debt and promotion of unaccountable private finance for Sri Lanka, Pakistan and many other global South countries which are also among the most climate-threatened in the world. In effect, the Evolution Roadmap maintains the IFIs’ stance that surviving the climate emergency reverts back to debt-trapped Pakistan, even as it contributed less than 1% of global carbon emissions and is owed a climate debt and reparations by global North countries.
OUR CALLS AND DEMANDS
Pakistan and Sri Lanka count among many other global South countries similarly situated in multiple crises that are systemic in nature and character, and require no less than systemic and structural change.
The World Bank and the IMF are clearly in no position – by virtue of the interests they represent and protect, and a track record of aggressively promoting debt dependence and austerity conditionalities – to immediately provide just solutions that borrowing countries need, much less transformative solutions over the long term.
Reiterating our demands, we stress the need for unconditional and immediate cancellation of unsustainable and illegitimate debts of Sri Lanka, Pakistan and all countries of the South!
We roundly reject the false debt solutions promoted by the IMF-World Bank and other international institutions, the G20 and the Paris Club!
We call on peoples’ organizations and movements to mount wider, stronger actions for debt justice and for the transformation of an exploitative international financial architecture to one that works for people and planet. ■
The statement can also be downloaded here.
Read more about rethinking IMF programs in Sri Lanka and Pakistan here.
This policy brief can also be downloaded here.
The Asia Debt Monitor is an e-publication of the Asian Peoples' Movement on Debt and Development.
The full APMDD Asia Debt Monitor 2023 Issue #1 can also be downloaded here.
Renewing efforts to bring national gov’t debt under public scrutiny and shift payments away from questionable loans to support people’s needs and survival
Manila, February 21, 2023 “Audit the debt now! Repeal the Automatic Appropriations Law”
The call to examine the public debt – a legacy of debt dependence by the Marcos Sr. administration and carried through by successive Philippine administrations – echoed from leaders and respected individuals coming together as a commission for the Philippine Citizens Debt Audit.
The national government debt now stands at P13.5 trillion, as last reported by the Bureau of Treasury. Through the Citizens Debt Audit, the commissioners aim to empower Filipinos to dig into our public debt, disentangling the web of unsustainable debt levels and the burden they impose on ordinary citizens.
Launched in Quezon City to examine the increasingly ballooning public debt of the country, they also pressed for the repeal of a Marcos Sr. law that allows automatic appropriation of funds for debt service, without benefit of public consultations and regardless of more urgent survival needs today of the Filipino people
Dr. Rene Ofreneo, current president of the Freedom from Debt Coalition (FDC) and Professor Emeritus of the UP School of Labor and Industrial Relations scored the Automatic Appropriations policy for curtailing citizens’ rights to information and participation in debt governance and management. “These public debts were and continue to be incurred in the name of the Filipino people. We are also the ones shouldering debt service payments, whether through taxes or cuts in public expenditures for health, education, job creation and other needs. Yet, we only get to know what debts were contracted after the deed is done, and then bear the consequences for debt-funded projects that may have violated human rights or destroyed environments.”
“Debt audits are critical towards shaping and transforming policies on outstanding debts and debt payments, as well as borrowing policies. They can also serve as bases to call for changes in the policies of lenders, ” said Lidy Nacpil, coordinator of the Asian Peoples’ Movement on Debt and Development (APMDD). “Filipinos are struggling to survive in the face of multiple crises. Examining the public debt through a debt audit can identify loans that should not be paid, and open opportunities for shifting public money from debt service to people’s needs especially in these extremely difficult times.”
UP Professor Emeritus of Asian Studies Dr. Eduardo Tadem, former FDC president, shared the challenges and gains of the coalition in undertaking a Citizens Debt Audit and pushing for an Official Debt Audit. He noted milestones following years of debt audit campaigning, such as the inclusion of a special provision in the 2017 General Appropriations Act (GAA) signed by former President Duterte in December 2016 “to conduct a debt audit to determine the legitimacy” of 20 government-contracted foreign loans from the Asian Development Bank, World Bank and other lenders. These were among 481 outstanding foreign loans that were supposed to be probed under the Hontiveros-Pimentel initiative.
However, these efforts did not progress further for various reasons, notably the lack of political will, according to Tadem. He cited the veto powers of the President, which then President Gloria Macapagal-Arroyo exercised over a GAA special provision that would have suspended debt service for 13 foreign loans that the FDC called “illegitimate” or “fraudulent, wasteful, and/or useless.” Tadem said that “this is exactly why a Citizens Debt Audit is vital, for Filipinos to have the space to assert their democratic rights to information, to ask questions and be informed to take active part in policy-making on an issue that impacts their daily lives and their future. We need sustained public pressure to push for an official debt audit.”
As an example of a questionable loan, SANLAKAS Secretary General Atty. Aaron Pedrosa, presented the case of the New Centennial Water Source-Kaliwa Dam Project (NCWS-KDP), funded by a loan agreement with onerous conditions. These include costly repayment terms and a waiver of immunity by the Philippine government in case lenders file for arbitration. “This practically holds our sovereignty hostage,” said Pedrosa who further cited irregularities in the issuance of the Environmental Compliance Certificate (ECC) by the Department of Environment and Natural Resources and the Certificate Precondition issued by the National Commission on Indigenous People.
The controversial NCWS-KDP was initiated as a PPP project during the term of Pres. Benigno Aquino III but was later converted to an official development assistance (ODA) project by the Duterte administration with the Export-Import Bank of China providing funding for 85 percent of the project cost through a bilateral loan. Atty. Pedrosa is co-counsel of the petition for environmental protection filed by indigenous peoples to stop the construction of the Kaliwa Dam Access Road Project. The access road was found in violation of legal requirements and laws protecting the Dumagat-Remontado ancestral domain.
The commissioners plan to hold public consultations and publish reports in the coming months. In addition to Nacpil, Ofreneo, Tadem and Pedrosa, commission members include Bishop Gerardo Alminaza (Co-convenor, Withdraw from Coal Coalition); Maria Rosario Ballescas (Coordinator, Regional Center of Expertise on Education for Sustainable Development); Leody de Guzman (Chairman Emeritus, Bukluran ng Manggagawang Pilipino); Manuel Montes (Senior Advisor, Society for International Development); Maria Dulce Natividad (UP Asian Center Associate Professor); Eribert Padilla (Certified Public Accountant); Loretta Ann Rosales (Chairperson Emeritus, AKBAYAN Citizens Action Party); Flora Santos (President, Oriang national women’s movement) and Zyza Nadine Suzara (Executive Director, Institute for Leadership, Empowerment, and Democracy or I-Lead).
Mae Buenaventura - APMDD
Rovik Obanil - FDC